Financial News

Gloomy Growth Prospects For The World Economy

Despite global high and low spots for growth, the world economy is unlikely to increase by more than a modest amount during the next 12 months.

This year’s forecast is world GDP growth of 2.8% – and next year the figure is unlikely to exceed 3.1%, according to an independent global think tank.

The forecast could get even more gloomy, says the Conference Board Global Economic Outlook.

Based on current trends, global growth is unlikely to improve between 2014 and 2019 and may even fall back in the following five years if the trend fails to show any real improvement.

The predictions are based on analysis of 50 major and emerging economies.

“Current growth is failing to meet even the most cautious projections,” said Bart van Ark, the board’s chief economist.

Mismanaged recession

“The recession in Europe was mismanaged and inflicted more damage than was necessary, while the US shut-down was avoidable and a disaster.

“Combine those factors with growth slowing down in emerging nations like India, Mexico, and Brazil and the outlook is not good.

“The upside is opportunities for growth are out there if governments and businesses reform and accelerate investment in their economies.”

The board gives a favourable report for economic revival in most of Europe, but fear austerity measures in Britain, Germany and France will drag down expectations of higher growth.

Continuing political infighting is restricting growth in the US, says van Ark.

“The nation has potential that remains unfulfilled due to political brinkmanship,” he said. “The private sector has the capacity to push for growth but is hindered by the politicians.

Middle income trap

“Plans to spend more on Medicare and social security could have an effect on spending on infrastructure, education and research, which are the areas to focus on to spur growth.”

Van Ark also warns some successful emerging economies are heading for a ‘middle income trap’, which he describes as hitting a level where workers are too rich to compete with other markets on cost but companies are too poor to innovate.

“Governments in China, Brazil and India need to look at their fiscal policies to align them with regulatory and tax changes for supporting middle income consumers, and to look at more investment in infrastructure and education.

“The trap is sprung when these nations move on from emerging manufacturing markets to become major consumer markets. These reforms need to start soon as they will take years to feed through to the economy.”

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